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J. Kumar Infraprojects Ltd. And Prakash Industries Ltd. Versus Securities and Exchange Board of India & Ors And BSE Limited & Ors.

Suspected to be the shell companies - investigation in respect of 331 companies by SEBI - suspension of trading in securities - Held that:- As rightly contended by counsel for appellants, letter addressed by MCA on 09.06.2017 merely required SEBI to investigate as to whether the 331 companies named therein which were suspected to be shell companies, were in fact shell companies and whether the said companies had any credentials/ fundamentals and if so SEBI was required to take action in accordan .....

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companies out of the 331 companies which were listed on their exchanges. Thus, it is apparent that SEBI passed the impugned order without any investigation. - Even if the letter of MCA dated 09.06.2017 was considered by SEBI to be a direction given for implementation without investigation, very fact that SEBI took nearly two months to comply with the directions given by the MCA clearly shows that there was no urgency in issuing the impugned communication without even investigating the crede .....

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173 of 2017 - Dated:- 10-8-2017 - Mr. J.P. Devadhar, Mr. Jog Singh And Dr. C.K.G. Nair For The Appellant : Mr. Janak Dwarkadas, Senior Advocate with Mr. Ankit Lohia, Ms. Rishika Harish and Mr. Amit Dey, Advocates i/b Mindspright Legal And Mr. Pradeep Sancheti, Senior Advocate with Mr. Prakash Shah and Mr. Robin Shah, Advocates i/b Prakash Shah & Associates For The Respondent : Mr. Darius Khambata, Senior Advocate with Mr. Shyam Mehta, Senior Advocate, Mr. Tomu Francis and Mr. Vivek Shah, Adv .....

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wo appeals are filed by the appellants to challenge the communication issued by SEBI on 07.08.2017 to the three stock exchanges viz; Bombay Stock Exchange Limited ( BSE for convenience), National Stock Exchange of India Limited ( NSE for convenience) & Metropolitan Stock Exchange of India Limited, as well as the two orders both dated 07.08.2017 passed by BSE & NSE in compliance with the directions contained in the SEBI communication dated 07.08.2017. 2. Impugned communication of SEBI dat .....

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dvised to identify the listed companies out of the list of 331 companies on their exchange and take following measures: a) Trading in all such listed securities shall be placed in Stage VI of the Graded Surveillance Measures (GSM) with immediate effect. If any listed company out of the said list is already identified under any stage of GSM, it shall also be moved to GSM stage VI directly. Under the Stage VI of GSM, trading in these identified securities shall be permitted to trade once in a mont .....

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ed to transact in the security except to buy securities in the said listed company until verification of credential/ fundamental by Exchanges is completed. c) Exchanges shall initiate a process of verifying the credentials/fundamental of such companies. Exchanges shall appoint an independent auditor to conduct audit of such listed companies and if necessary, even conduct forensic audit of such companies to verify its credentials/ fundamentals. d) On verification, if Exchanges do not find appropr .....

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under GSM Stage VI directly on revocation of suspension by Exchanges. Yours faithfully, Sunil Kadam Enclosures: List of 331 Companies 3. Relying on a decision of the Apex Court in case of NSDL v/s SEBI reported in (2017) 5 SCC 517 counsel for SEBI raised a preliminary objection regarding the maintainability of these appeals. They submit that the impugned communication dated 07.08.2017 is an administrative direction issued to three stock exchanges and therefore this Tribunal has no jurisdiction .....

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l. 5. In the present case, the directions issued by SEBI to the three exchanges under the impugned communication are:- a) Identify as to whether any of the 331 companies suspected to be the shell companies by the MCA vide its letter dated 09.06.2017 are listed on their exchanges. b) If so, move the securities of those listed companies under Stage VI of GSM with immediate effect so that the said securities are not permitted to trade on daily basis but are permitted to trade once in a month under .....

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only upon verification by concerned stock exchanges regarding the credentials/ fundamentals of such companies and they shall not be allowed to transact in the securities except to buy securities in the said listed company until verification of credentials/ fundamentals of those companies are completed by the exchanges. 6. Thus, the impugned communication is not a general direction given by SEBI to the three stock exchanges in the interests of investors or securities market as contemplated under .....

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n administrative order. In other words, the impugned communication which prejudicially impairs the rights and obligations of the appellants, its promoters and directors would fall in the category of a quasi judicial order and hence appealable before this Tribunal under Section 15T of SEBI Act. 7. It is contended on behalf of SEBI that appeal under Section 15T of SEBI Act is maintainable only against an order passed by the Board or the Adjudicating Officer of SEBI and therefore, the impugned comm .....

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ities of the appellants, on day to day basis the impugned communication is in effect referable to a quasi judicial order passed under Section 11(4) of SEBI Act and not an administrative order passed under Section 11(1) of the SEBI Act. Accordingly, we see no merit in the preliminary objection raised by SEBI. 8. Mr. Dwarkadas and Mr. Sancheti, Learned Senior Advocates appearing on behalf of respective appellant submitted that SEBI has issued the impugned communication on 07.08.2017, without givin .....

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onsider the appellants as suspected shell companies especially when the appellants do not satisfy any one of the 10 criteria prescribed by the Ministry of Finance for considering a company to be a shell company. It is submitted that the GSM framework even according to SEBI (set out in the notice of SEBI dated 23.02.2017) is applicable to companies that witness abnormal price rise that is not commensurate with financial health and fundamentals of the company which inter- alia includes factors lik .....

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3 years is in excess of ₹ 1000 crore and in the last 3 years appellants have paid more than ₹ 100 crore per year as income tax/ excise duty. It is submitted that the orders in hand are also to the tune of several thousands crores of rupees. In these circumstances, considering the appellants as suspected shell companies has seriously prejudiced the reputation of the appellants in the securities market. Accordingly, it is submitted by counsel for appellants that the impugned decision .....

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lants are not justified in filing the present appeal. 10. Mr. Nankani, Learned Senior Advocate for SEBI furnished a copy of the letter dated 09.08.2017 addressed by SEBI to the three stock exchanges. By that letter, the three stock exchanges have been requested to seek the documents specified therein from the 331 companies for the purpose of verification of their credentials/ fundamentals. It is further stated in that letter that the companies may be advised to produce auditors certificate givin .....

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were adjourned till 2:15 p.m. on 10.08.107 i.e. today. Counsel for SEBI were called upon to take instruction as to when the letter of MCA dated 09.06.2017 was placed before the Chairman of SEBI or the Board and when decision was taken to issue the impugned communication dated 07.08.2017. 12. Today when both appeals are taken up for hearing it is submitted that the WTM of SEBI has heard the appellants and the order is awaited subject to the appellants furnishing additional information sought by .....

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